FDI and International Collusion

We develop a model of international collusion between price-setting oligopolists with both options of trade and foreign direct investment (FDI). First, we show that with one firm in each country cross-hauling of FDI may facilitate international collusion. Then we prove an irrelevance result where multimarket contact with two or more firms and symmetric market size in both countries does not promote international collusion with FDI. Finally, with an asymmetric number of home firms or with different sizes of the markets, FDI may facilitate international collusion. Interestingly, this collusion-enhancing FDI may occur at lower levels of trade costs.